Integrating Relevant ESG Indicators in the Investment Process
Institutional investors have a fiduciary duty to consider environmental, social and governance (ESG) indicators that are relevant to financial performance (see Freshfields Bruckhaus Deringer, 2005, page 13).
European companies must disclose ESG indicators relevant to their business performance in management reports (see Articles 19 and 20 of EU Accounting Directive 2013/34/EU).
- industry-specific key performance indicators (SD-KPI database for more than 4000 companies worldwide; iSTOXX SD-KPI-Indices) or a thematic approach (Big Six®);
- a clear definition based on global standards that are
simple, systematic and transparent.
This process is particularly appropriate for equity and bond investing and does not necessarily entail limiting the investment universe via exclusion. The process also enables the portfolio and the related mandates to remain largely intact, so that the cooperation between asset owners and asset managers may continue (see UN PRI Services and references).